China's startups hope for boom after Alibaba IPO

Published on NewsOK Modified: June 11, 2014 at 9:53 pm •  Published: June 11, 2014
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BEIJING (AP) — Nils Pihl has spent 18 months building what he calls cutting-edge software to crunch "really big data sets." But instead of going to Silicon Valley, the 27-year-old Swede and his four colleagues have been working on his invention from a small apartment overlooking smoggy northwest Beijing.

In typical startup fashion, they've raised hundreds of thousands of dollars after countless pitch meetings and were racing to prepare their product for launch. Their investors are in Beijing as well as the U.S.

China might seem an odd choice for young tech entrepreneurs. Instead of innovation and risk taking, the country is more associated with state domination of the economy, rampant intellectual property theft and heavy duty government censorship of social media.

Perceptions, however, are changing. The high profile success of Jack Ma's e-commerce company Alibaba, which is planning a giant initial public offering in the U.S. this year, has drawn attention to how the former startup outmaneuvered eBay in China to become the world's biggest online bazaar. More recently, use of smartphones and the mobile Internet has grown explosively, creating new opportunities for e-commerce and other tech ventures.

"We find this to be like the best incubator you could get," Pihl said in his building's courtyard, where children chased each other and couples took twilight strolls. "We don't consider ourselves a Chinese startup. We're a Valley startup hanging out in Beijing to keep our costs low."

Alibaba and a handful of other online ventures are the most visible examples of companies that began with a startup ethos and thrived despite bumps along the way. Perhaps the biggest challenge for startups came three years ago when several Chinese companies were caught in accounting scandals and forced off U.S. stock exchanges.

Such problems pushed Chinese regulators to halt all IPOs in China, another blow to the startup scene since going public is a common way for ambitious companies to raise additional funds after being nurtured by venture capital and other early investors.

Regulators lifted the ban earlier this year, making way for 11 IPOs in the first three months of 2014, just one short of the number in the U.S. during that time, according to accounting firm PwC. Analysts were expecting as many as 400 Chinese IPOs this year, but confusing new regulations issued by the government have again held back offerings.

Still, Chinese companies such as No. 2 e-commerce site JD.com have listed in the U.S. this year, and entrepreneurs and investors in China are expecting a flood of investment.

"If Alibaba goes public at say $150 billion to $180 billion and they continue to grow at 30 percent a year, in five years this could be the largest company in the world" by market capitalization, said Richard Hsu, managing director of Intel Capital China at a recent startup forum in Beijing. "And if the largest market cap in the world is now a Chinese company involved in e-commerce, how much attention is the rest of China going to get?"

Budding Chinese firms of all types raised more than $1 billion in venture capital in the first quarter, a 35 percent jump over the same period last year, according to Dow Jones VentureSource. That was far short of the nearly $10 billion raised in the U.S. during the same period, but enough to rank China ahead of Europe in venture capital.



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